Unconventional plays have increased Permian Basin production

Mella McEwenMidland Reporter-Telegram

Published 12:00 pm, Wednesday, March 30, 2011

"Who would have thought in 2003 we'd be witnessing what we're witnessing now," marveled Tim Dunn, president of CrownQuest Petroleum, referring to the last time he addressed the Executive Oil Conference.

As he spoke at the 17th annual conference Tuesday at Midland Center, Dunn displayed a map with a cross section of the Permian Basin, displaying formations like the Wolfcamp, Clearfork and Spraberry.

"We've known about them for generations," he said. "Everyone knew the Wolfcamp would put oil in the pit, but no one saw a resource play anchored by the ugly Wolfcamp."

Steve Pruett, president and chief financial officer of Legacy Reserves, noted that Permian Basin production had peaked at about 1.6 million barrels a day in 1976 before beginning a steady decline. But since 2007, he said, producers have added 83,000 barrels of production a day "thanks to the Wolfberry and other activity."

But the Wolfberry and other plays like the Wolffork, Bone Spring and Avalon Shale are putting a strain on the region's infrastructure that will take months to alleviate.

"Infrastructure," he said, "is not to be taken for granted. Just because you drill and complete a well, you may not produce it."

There was, Dunn said, a confluence of factors that came together to fuel the growth in activity that has benefited the Permian Basin.

One factor was the end of conventional wisdom that natural gas prices would continue rising and the fact that natural gas production is now rising faster than demand. This, he said, should boost efforts to increase the commodity's use as a transportation fuel. A second factor is that forecasters are talking about energy demand, not excess capacity, as nations like China and India industrialize and increase global demand. Third, the dominance of vertical drilling in the Permian Basin has made the area an "orphanage" for vertical rigs while historically low interest rates are also driving activity. Finally, advances in fracturing technology have also played a role, he said.

"I think this will last quite awhile," Dunn predicted, saying CrownQuest has six rigs running and is about to add a seventh. But, he warned, "If we don't stop it first politically, it will stop and stop with a really bad fall. Our grandchildren will suffer," which is why he works with Empower Texas and other groups to raise awareness of the need to reduce government deficit spending.

Pruett, whose company has a multi-year inventory of drilling prospects, said he is long-term bullish on crude oil. "I think it's a $100 commodity because of the industrialization of India and China," he said.